Solved: Award Plus Co manufactures medals for winners

of athletic event

Award Plus Co. manufactures medals for winners of athletic events and other contests. Its
manufacturing plant has the capacity to produce 10,000 medals each month; current monthly
production is 7,500 medals. The company normally charges $175 per medal. Variable costs and
fixed costs for the current activity level of 75 percent follow:
Current Product Costs
Variable costs
Manufacturing
Labor ................. $ 375,000
Material ................ 262,500
Marketing ............. 187,500
Total variable costs .......... $ 825,000
Fixed costs
Manufacturing ............ $ 275,000
Marketing ............. 175,000
Total fixed costs .......... $ 450,000
Total costs ............. $1,275,000

Award Plus has just received a special one-time order for 2,500 medals at $100 per medal. For
this particular order, no variable marketing costs will be incurred. Cathy Senna, a management
accountant with Award Plus, has been assigned the task of analyzing this order and
recommending whether the company should accept or reject it. After examining the costs,
Senna suggested to her supervisor, Gerard LePenn who is the controller, that they request
competitive bids from vendors for the raw materials since the current quote seems high. LePenn
insisted that the prices are in line with other vendors and told her that she was not to discuss
her observations with anyone else. Senna later discovered that LePenn is a brother-in-law of
the owner of the current raw materials supply vendor.

Required
1. Determine if Award Plus Co. should accept the special order and why.
2. Discuss at least three other considerations that Cathy Senna should include in her analysis of
the special order.
3. Explain how Cathy Senna should try to resolve the ethical conflict arising out of the
controller’s insistence that the company avoid competitive bidding.
(CMA Adapted)

ANSWER
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